Morgan Stanley Over Wells When PIIGS Fly: Street Whispers

NEW YORK (TheStreet) -- Wells Fargo(MS) shares have trounced those of Morgan Stanley(MS) year to date, though that trend has reversed itself in recent days.

The simplest explanation for this disparity is that things have calmed down in Europe. Whether it was comments by European Central Bank President Mario Draghi, saying the ECB would buy short-dated Spanish and Italian bonds or an increased willingness by Spanish prime minister Mariano Rajoy to accept a bailout (two separate explanations offered by the Financial Times in recent days) European stock and bond markets have rallied strongly since Aug 2. Since that date through Friday, the iShares MSCI Spain Index (EWP) has risen 11.9%, Morgan Stanley shares have risen 12.13% and Wells Fargo shares are up just 1.47%.

Though Wells has been taking advantage of the crisis in Europe to buy some European assets on the cheap, it still gets the overwhelming portion of its revenues from the U.S. Morgan Stanley, by contrast, has greater international exposure, and it has the lowest credit rating among the big six U.S. banks. As a result, a full-blown European crisis would likely cause trading counterparties to lose confidence in Morgan Stanley ahead of U.S. peers such as Goldman Sachs(GS) , Citigroup(C) Bank of America(BAC) or JPMorgan(JPM) .

Morgan Stanley has been making efforts to strengthen its balance sheet--for example by relying more on deposits for funding than the bond market. Still, as long as stock market investors link Morgan Stanley's fate with Europe's, owning Morgan Stanley shares will remain a risky proposition. Wells Fargo, on the other hand, will remain a safe place to hide out.

Unless you think Europe's sovereign debt woes magically ended on Aug. 2.

-- Written by Dan Freed in New York.

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